Gold tumbles below $4,600 ahead of Jackson Hole Symposium

Gold price (XAU/USD) attracts some sellers below $4,600 during the early European trading hours on Friday. The precious metal retreats from a three-month high as in-line US inflation data has reinforced the possibility of further Federal Reserve (Fed) rate hikes. Traders await Fed Chair Kevin Warsh's speech at the Jackson Hole Economic Symposium on Friday for fresh impetus.

The core Personal Consumption Expenditures (PCE) Price Index inflation, the Fed's preferred inflation gauge, held steady at 3.3% YoY in July, the US Bureau of Economic Analysis (BEA) revealed on Wednesday. This figure came in line with market expectations. On a monthly basis, the headline PCE Price Index and the core PCE Price Index both rose by 0.2% in July.

Following the data release, the market significantly increased its bets on a September rate increase. According to the CME FedWatch Tool, the probability of a Fed rate hike in September rose to 40% from 36% before the data release. This, in turn, could weigh on the yellow metal. Gold is often used as a hedge against inflation but does not yield interest, making it less attractive when interest rates are high.

On the other hand, optimism for a reopening of the Strait of Hormuz amid diplomatic efforts involving Iran and Oman might ease oil-driven inflation concerns, capping the downside for gold.

Irans Security Chief Mohsen Rezaei said on Friday that Tehran is preparing a list of its conditions to open the Strait of Hormuz in response to a request by mediators, adding that conditions include ending the war in the region, per Reuters.

According to TD Securities, a shift in tone from Fed Chair Warsh remains a key risk for bullion, with the bank cautioning that “a more hawkish tone from Fed Chair Warsh would be a catalyst for some reversal in the yellow metal.” However, the strategists argue that “the bar is likely high to reverse the improved sentiment in precious metals,” suggesting that any policy surprise would need to be substantial to materially undermine the current constructive backdrop for gold.

In the daily chart, XAU/USD holds well above its 100-day simple moving average (SMA) and the 20-day Bollinger middle band, keeping the near-term bias bullish despite the recent pullback from record highs. The Relative Strength Index (14) around 65 shows positive momentum but shy of extreme overbought, suggesting upside pressure persists, although the proximity of overbought territory hints that the advance could become more labored as price stretches further from underlying trend support.

On the topside, immediate resistance is located at the upper boundary of Bollinger band near $4,760, where previous upside extensions could face renewed selling interest. On the downside, initial support is seen around the current area near $4,585, with stronger demand anticipated at the middle Bollinger Band at $4,415 and the 100-day SMA at $4,375; a deeper slide toward the lower limit of Bollinger band at $4,073.52 would only come into view if those trend supports give way, which for now looks less likely while daily momentum remains constructive.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.

When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.

The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.

It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Feds weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.